For an Amazon Naysayer, Nothing but Frustration

For an Amazon Naysayer, Nothing but Frustration

Article excerpt

As Amazon's share price rises for no apparent reason, even the
analysts who are paid big money to understand the company often
appear to be guessing.

Three months ago, you could buy a share of Amazon for $300.
Today, it would cost you nearly $400. Surely such a run-up was
driven by expectations that the company's all-important fourth
quarter would be even better than forecast.

Except analysts have been cutting their profit estimates, not
raising them. Three months ago, according to Yahoo Finance, analysts
calculated that the retailer would earn 77 cents this quarter. Now
they foresee 66 cents.

This is the kind of thing that drives Amazon detractors crazy.

Lowered expectations mean Amazon has a greater chance of meeting
or exceeding them, which would in turn be interpreted as bullish by
investors, driving the stock up again.

Paulo Santos, a Portuguese trader who writes for Seeking Alpha,
has been one of the most consistent and impassioned Amazon critics
during the last few years.

He has argued that the company is losing money not because it is
investing for the future, which is what Amazon says, but because it
is a less-than-great business. He has put his money where his
arguments are, betting the stock will go down.

In retrospect, that was not a good idea.

"I lost and lost big," Mr. Santos said in an email.

"Amazon is more unprofitable now than when I started writing
about it, will remain more unprofitable than when I started writing
about it, but the stock went up a lot in spite of that."

Mr. Santos declined to be more specific about his losses, but he
said the final straw came when the company released its third-
quarter results seven weeks ago. Amazon's revenue was about $400
million more than anticipated, and the stock rose nearly 10 percent.

The unexpected increase in revenue, Mr. Santos argued, could be
attributed to a change in accounting in which e-books are accounted
for at 100 percent of revenue instead of 30 percent of revenue. …